Reagan Bends On Debt Bill

September 27, 1987|By George de Lama, Chicago Tribune.

WASHINGTON — In a dramatic policy shift, President Reagan said Saturday he will reluctantly sign legislation passed by the Democratic-controlled Congress that could raise taxes and cut defense spending to reduce the budget deficit next year.

Reagan used his weekly radio address to announce he will sign a bill restoring the automatic enforcement mechanism of the Gramm-Rudman budget-balancing law despite the opposition of some advisers and his own strong reservations.

The President complained he had little choice but to sign the legislation because it was attached to a bill raising the national debt ceiling to $2.8 trillion, a measure required to keep the federal government from financial default next week.

``This is one more example of Congress trying to force my hand,`` Reagan said, accusing Democrats of an attempt to compel him ``either to sign a tax bill or to accept massive cuts in national defense, or both.``

Reagan, who has campaigned for more than two decades against higher taxes but who accepted a previous tax increase in 1982, said he nonetheless decided to sign the bill in order to back up government bonds and keep payments going to Social Security and veterans` pension recipients.

But the President vowed he would propose new cuts in domestic programs to offset possible reductions in military spending and stave off a $12 billion tax increase next year proposed by congressional Democrats.

Reagan`s decision is expected to have a positive effect on financial markets and could boost the value of the dollar, according to some financial analysts.

``This decision is not easy,`` Reagan said. ``I have no choice butto sign this bill to guarantee the United States government`s credit, but I also will not permit Congress to dismantle our national defense, to jeopardize arms reduction or to increase your taxes. I am determined that will not happen.``

The bill restores the Gramm-Rudman automatic enforcement mechanism that would impose across-the-board budget cuts if the White House and Congress fail to cut the budget deficit to $144 billion in fiscal 1988 and $136 billion the following year.

The automatic cuts would be divided evenly between domestic and defense spending unless Congress and the President agree on another way to reach the deficit goal.

The Supreme Court declared the original version of the Gramm-Rudman budget-balancing law unconstitutional last year because it placed the power to order the automatic cuts with Congress.

The new law gives the power to the Office of Management and Budget in the executive branch.

Reagan`s decision was seen as a victory for Treasury Secretary James Baker and White House Chief of Staff Howard Baker, who had urged the President to sign the bill over the opposition of Defense Secretary Caspar Weinberger and other conservatives in the administration.

After the Senate approved the bill Wednesday by a 64-34 vote, Reagan signaled his reservations about the measure and refused to say whether he would sign the legislation.

But House Republican leaders met with Reagan Thursday and urged him to sign the bill, prompting Treasury Secretary Baker to predict a veto would be unlikely.

Without an increase in the debt ceiling, the U.S. government would be forced to default on its obligations by Thursday, the first day of the new fiscal year, according to Treasury Department estimates.

A government default is unprecedented and could wreak havoc in international banking and financial circles, administration officials said.

In his radio address, Reagan appeared bitter about a congressional tactic that he said ``puts me in a position of accepting legislation with which I fundamentally disagree.

``Unfortunately, Congress consistently brings the government to the edge of default before facing its responsibility,`` he said. ``This brinksmanship threatens the holders of government bonds and those who rely on Social Security and veterans` benefits. Interest rates would skyrocket, instability would occur in financial markets and the federal deficit would soar.``

The new bill seeks to balance the federal budget by 1993, a more modest goal than the original Gramm-Rudman law`s deadline of 1991.

The updated legislation also allows Congress and the executive branch to delay severe budget reductions until after the 1988 elections.

Instead of the previous $108 billion deficit goal for fiscal 1988, the new bill establishes a goal of $144 billion.

For fiscal 1989, the new $136 billion deficit goal is nearly double the original law`s goal of a $72 billion deficit.